Brazil's Vale to invest record $24 B in 2011 as profit soars in third quarter 0

RIO DE JANEIRO/SAO PAULO (Reuters) - Brazilian mining company Vale, the world's top iron ore producer, will invest a record $24 billion in 2011 as it diversifies toward pricier metals and profitable fertilizers.

Vale's eagerly awaited capital spending budget is nearly double this year's planned $12.9 billion outlays and will lay the groundwork for the company to vastly boost output of key products amid soaring demand for minerals from emerging markets such as China.

"The investments we announced today are meant to boost Vale's growth capacity," Chief Executive Roger Agnelli said in an earnings presentation. "No other mining company in the world has the organic growth capacity that Vale does."

Vale said third-quarter earnings more than doubled to a quarterly record of $6.1 billion, beating estimates in a Reuters poll.

Output of iron ore - which is in heavy demand as developing nations rapidly build out infrastructure - is expected to jump almost 75 percent to 522 million tonnes per year by 2015 from current capacity of around 300 million tonnes.

The investment plan also shows major growth in output of fertilizers, which have become an increasingly important part of Vale's business due to soaring demand sparked by rising food consumption around the world.

The company, which has spent nearly $6 billion this year alone on fertilizer acquisitions, expects to double phosphate rock output and more than quadruple potash production between 2011 and 2015.

Before the end of this year, Vale expects to begin production at the Onca Puma nickel mine in Brazil and the Tres Valles copper project in Chile, operations that will also diversify its production base.

The company will dedicate about 20 percent of 2011 investments to logistics projects, including expanding the rail system linked to the massive Carajas iron mine and increasing the capacity of the Ponta da Madeira port terminal.

"The mine is the cheapest part. The most expensive part ... is the logistics - the rail and the ports. That's where we're concentrating our efforts," Agnelli said.

He said iron ore prices during the first quarter of 2011 would likely be similar to current levels on the spot market.

The strong spending plan should help Vale's relations with Brazil's government, which harshly criticized the company in 2009 for slashing its investment budget in the wake of the financial crisis.

The government still holds considerable sway over Vale, a former state-run company that was privatized in the 1990s. State-linked pension funds and the government's development bank BNDES are still key shareholders.

Analysts believe Vale's strong cash position, which has allowed it to give shareholders billions of dollars in dividends, will spur politicians in the coming months to push for higher mineral royalties to tap into rising prices.

Vale has benefited from global economic growth that has boosted commodities prices from 2009 levels, and the switch to a quarterly pricing system that has increased the price it receives for its iron ore.

Prices are now mostly set each quarter through indexes based on spot prices of the previous three months. Spot market iron prices topped $180 per tonne earlier this year but are now close to $150 per tonne.